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Slow EMV transition will dampen NFC’s potential this holiday season

While the EMV deadline arrives today, many retailers are not ready, suggesting that NFC payments solutions Apple Pay and Android Pay will continue to face more limited acceptance compared to Samsung Pay, which leverages older magnetic stripe technology.

Samsung Pay, which launched recently and is available on this year’s phone models, is reportedly accepted at more than 85 percent of all stores already thanks to its use of the older magnetic stripe technology in conjunction with NFC. For retailers looking to take advantage of mobile payments during the upcoming holiday season, NFC may still not be quite ready for prime time.

“Retailers who have already launched mobile payment capabilities have an opportunity to capitalize on a new payment distribution channel that can speed throughput at the point of sale,” said Thad Peterson, senior analyst at Aite Group.

“Some merchants are holding off on EMV implementation until after the holidays and that may impact their ability to accept mobile payments as well,” he said.

“The formula is simple. No EMV = No NFC = No mobile payments.”

Payment security
Retailers are supposed to have the new EMV readers in place starting today or else risk assuming the liability of any credit card fraud.

The switch to EMV, a standard that is already widely adopted around the world, is being pushed in the United States by Visa, MasterCard, Discover and American Express because it promises key security benefits at a time when retailers are increasingly facing data breaches.

The standard embeds a computer chip in each card that stores account details and creates a unique, encrypted code for each transaction.

While some reports forecast that a majority of retail locations will have the new terminals in place by the end of 2015, others are suggesting that transition will not be close to complete for a year or more.

On the card issuer side, Oberthur reports that while the largest card issuers have shipped chip cards to their cardholders, many mid-sized and smaller issuers are likely to miss the Oct. 1 deadline.

Close mobile ties
The need to make the transition to EMV could be a distracting factor for some retailers, taking the focus off mobile payments.

“EMV is the bigger priority, the liability shift can create additional costs for the merchant if they are not providing the EMV capability, and the cost of implementation is significant for larger merchants, less so for small,” Mr. Peterson said.

Because EMV terminals also typically incorporate NFC technology, the transition has been closely tied to mobile payments. If a number of retailers have not made the transition, and therefor cannot accept NFC payments, this means that consumers are unlikely to broadly adopt NFC if the stores they shop in do not accept it.

This is why some mobile payments solutions providers are not counting exclusively on NFC.

Samsung Pay, for example, taps magnetic secure transmission to interact with previous generation credit card terminals at retail locations that have not made the switch to EMV yet.

Samsung Pay is built into phones such as the Galaxy S6 and was activated this week.

Proximity payments
One of Samsung Pay’s biggest challenges right now is that merchants do not seem to be aware that they already can accept payments made with Samsung phones without having to do anything.

Samsung Pay could gain adoption in the short-term because of its use of magnetic stripe technology but the consensus seems to be that NFC will win out in the long run.

EMV is also not the only advance being made in payments security, with mobile payments providers embracing or exploring biometrics, selfies, tokenization and other strategies to provide payment protection that may, in some cases, be superior to EMV.

“Virtually every EMV terminal also incorporates NFC, enabling mobile proximity payments, so without implementation of EMV, NFC penetration would be low and adoption would be much slower,” Mr. Peterson said. “The combination of the near simultaneous launch of Android Pay and Samsung pay combined with distribution of the next generation of Apple Pay enabled devices dramatically increases the number of devices that can use mobile proximity and the increasing penetration of NFC via EMV Reterminalization will accelerate the adoption and usage rate for mobile payments.”

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York